Investing in the British market

BUYING property in another country is not for the faint-hearted and even professional institutional investors spend a great deal of time and money researching the markets they are interested in before committing. This article will focus on advice for individual investors interested in the British market.

Historically, Malaysians have purchased property overseas for various reasons, the most common of which is to diversify their property portfolio and to invest in more stable and transparent markets than many in Asia.

Homes are also purchased overseas as corporate residences or to provide accommodation for children studying in foreign universities. Part of the joy of buying overseas can be the research into the market and enjoying a working holiday.

A great deal has changed in the British economy since early 2007.

In summary, the British currency has weakened, the capital value of homes has dropped and the economy registered zero economic growth in the second quarter and into negative growth of -0.5% in the third quarter.

The pound recently slid beneath the US$1.80 mark for the first time in two years and dipped to a new record low against the Euro.

Attention is increasingly turning to the extent to which house prices must fall before confidence is regained. Savills’ expectation is that values of prime property in London will fall by 25% over the course of 2008 and 2009 and marginally less so in the regions.

Only in the very top of the market have prices held firm, with the £10mil-plus market in London and £4mil-plus market in the country continuing to show marginal growth (1.2% and 0.7% respectively in the first half of 2008).

On a more positive note, Savills’ research in London estimate that the recovery in the housing market will be led by London and the South East of England and by 2012 house prices will have recovered to those of pre-slump levels.

Changes in the law have made buying a home easier and more transparent, which should appeal a great deal to foreign investors. Investors must always ask the selling agent for a Home Information Pack (HIP), which became compulsory since Dec 14, 2007.

Following the start of the global credit crisis in 2007, activity in Britain’s commercial development sector started to fall steeply.

On average, prime offices have become 20% cheaper across Europe as at end of the third quarter with average prime central business district yields of 6%.

The City of Birmingham seems to be bucking this trend, with a take up 606,292 sq ft of Grade A office space in the third quarter and an upward pressure on rents, the highest rent secured this year was £33 (RM179) per sq ft per month.

Despite this, there are many ways to invest in unique commercial opportunities, from Britain’s fledgling real estate investment trust market to direct commercial property ownership.

While much residential property investment is driven by expectations of the growth of its capital value, commercial property returns are more focused on their rental income.

In conclusion, history has shown that the only certainty in the future is that capital values will bounce back and the rental market should strengthen in the immediate term since the introduction of tighter lending criteria.

Investing in the British market must be carefully timed to make the most of the weak currency and falling prices and as always the right location is paramount.

By The Star